Choosing the right kind of wallet can be difficult. There are several types of wallets providing different ways to store and access digital currency.
Generally, they can be broken down into five distinct categories: desktop, mobile, online, hardware and paper. Wallets from these categories have all their own advantages and disadvantages.
In the following text, you will learn what is special about every type of wallet and what questions you should ask yourself to find the best fitting option. We will not recommend any specific wallet because we want to inform objectively on this subpage.
How to decide which wallet is best for you
A wallet is only as secure as the reliability of the wallet service provider. So even if you had already answered the following questions and had decided on the best fitting category, take your time before choosing a provider.
You also need to remember, that not every wallet supports every cryptocurrency. While both Bitcoin and Litecoin are well known and popular, there are hundreds of new cryptocurrencies. You will not need a wallet for each of these, because most services enable you to use several currencies from the same wallet. So check if all the cryptocoins you want to purchase are supported.
In order to decide which wallet best fits your needs, you should ask yourself how you want to use it.
Do you need a wallet for everyday purchases or are you just going to buy and hold the digital currency like an investment?
- Do you prefer a simple method?
- How important is security to you?
- Do you mind relying on a third party?
- Do you require access to your digital wallet from anywhere or only from home?
What kind of wallets exist?
You can access your coins using software installed on a PC or laptop. There are several software packages available for Mac, Windows and Linux so your operating system does not matter at all. Note though, they are only accessible from the one computer you installed it on.
It is also difficult to take your coins with you so you should not choose that option if you want to use your currency on a daily basis.
Although desktop wallets offer one of the highest levels of security, it is not immune to hacking, just like any other data stored on a computer or laptop which is connected to the internet. The basic security measures such as antivirus, antimalware software and a strong firewall should at the very least be up to date.
Applications on smartphones are currently the most used method to manage cryptocurrencies. The most important reason for this is the ability to use the currency anywhere at any chosen time.
At the same time 24/7 accessibility is the very reason why smartphone applications are not secure. As long as there is a connection to the internet, there is a chance for hackers to attack a device.
For popular cryptocurrencies there are apps on both Android and iOS. For less popular cryptocurrencies you can expect a trustworthy Android version to be available.
If you want access to your wallet using various devices without being limited to your smartphone or PC, you can choose a provider of an online service. In that case, you have to decide how you want to store your keys.
In hosted web wallets your keys are stored online by a trusted third party. When creating an account, the provider links your account to a set of key pairs for the different coins they have listed to your account.
The big advantage you gain when using a hosted service is the option to recover your password in case you forgot it. This advantage is unique and cannot be done using any other wallet but it also comes with a big trade-off: If you do not have control over your keys, you do not have control over your funds.
Even if the third party is a trusted one, there is a chance of an entity going bankrupt or stealing money. The risk seems small, but it does exist and it has already happened. There is also a theoretical possibility that a sudden change in regulation might not allow them to let you withdraw your funds. Also, third parties managing the funds of their users are profitable targets for hackers.
When using self-hosted wallets, also often called non-hosted, you can check your balance or create transactions using a browser. In that case you will have to provide your keys at every login, making the procedure more complex. You also have to independently keep them secure to protect yourself from fraud. Therefore this method is as safe as the method you choose to store your keys.
Specialized hardware devices to store a user’s private keys are called hardware wallets. They can be used like a USB flash drive. Although this method depends on an internet connection to make a transaction, the data is stored offline granting increased security.
Using cryptocurrencies with a hardware wallet is easy. You simply plug in the hardware wallet to any internet enabled computer or device, enter a pin, send it and confirm it.
While most hardware wallets come with an app provided by the wallet service, there are very few software services that support hardware devices as well.
You should keep in mind, like all hardware, a device can always break down. For that reason it is essential to store the mnemonic phrase in a secure and separate location.
Paper wallets provide the highest level of security. While in all the options above the question “where are the keys” has to be discussed to evaluate the expected security, the answer here is very simple. It is on a piece of paper which you can hold in your hand. A paper wallet is simply your public and private key pair printed on paper.
Using it is relatively easy but needs more steps than any of the other wallets. To get funds, you have to transfer currencies to the public address shown on the paper. To use it, all you have to do is sync any software with your private key.
It can easily be transported because it is basically a piece of paper, but it is also very vulnerable to environmental impacts.